Exiting Your Business: Essential Questions to Get the Best Price

The Freedom Fighters: Loyal Business Owners

Who Are the Freedom Fighters?

When exiting you may fall somewhere between being a serial entrepreneur moving onto your next challenge and simply closing down your business. For many owners of micro and small businesses there is only one exit into retirement from a business they have grown over many years.  I call these owners the ‘Freedom Fighters’. They have often started their business to support their life and family. They have been loyal to the business because it has been a significant part of their life’s purpose. So how do they sell their business at a good price, that reflects all that they’ve put into it?

Critical Questions for a Successful Business Exit

Exiting your business can be one of the most significant decisions you’ll make as an entrepreneur. To ensure you get the best price, you need to address two crucial questions;

1. Have You Built Up Financial Security?

2. Are You Ready to Enjoy Your Freedom?

A lot has been written about the life of an entrepreneur as they grow their business(es). Much less is written about what happens after they leave their business. You will have seen news headlines about high-profile business people’s exits, but nothing about the vast majority of owners whose exit is well below the radar. The freedom fighters fall within that second group.

So let’s address those two big questions.

1. Have You Built Up Financial Security?

Your business is a big part of your life. It generates an income for you and your family. It gives you the mental challenges to make business ownership a job for life. Importantly, your business gives you the potential to build up your financial security for the future:

• As income you receive from it (profit, salary and dividends) that allows you to invest in assets such as property, investments and a pension for the future;
• As an asset that you could sell in the future to invest in those same properties, investments and pension.

Obviously, the best approach is to work on both: regularly setting aside money as an investment as well as making your business a more valuable saleable asset. A sort of ‘belt and braces’ approach.

If you have a financial advisor, then you will be familiar with planning your financial security. If not, then please consider the concept of the Freedom Point. That’s the point when the total value of your net worth, including future ‘pension income’ is enough to fund the lifestyle you require. Then you have the freedom to stop working of choose to do something else. To learn more download the Freedom Point eBook here.

When it comes to growing your business as an asset to sell in the future then you are effectively taking on responsibility for managing your investment. Whilst fund and pension managers will be looking after your various investments, it’s you who can make your business a valuable asset. Assess the saleability of your business using the Value Builder Assessment here.

2. Are You Ready to Enjoy Your Freedom?

Whilst financial planning for the future can be a more rational part of exit planning, the more irrational aspect is wondering whether you are personally ready to exit your business. My work with the Value Builder System has revealed there are 4 drivers to achieving a satisfactory exit.  Those drivers are:

Future vision: what do you plan to do after your sell your business?

Why do you want to exit your business? In most cases, there are a combination of factors that are either “pushing” you away from your business or “pulling” you to something else.

Push factors are legitimate reasons to want to exit your business, while pull factors are things you want to do after you leave your business. The happiest departures happen when there are just as many compelling pull factors as there are push factors.  It tends to be easier to think about push factors, which is why it is important to think about what you plan to do after exit – those pull factors.

Research by Coutts Bank suggests that nearly 40% of exiting entrepreneurs regret not having a plan for their future. You may fall into the other half of the surveyed audience and just want to take time out and recharge before making any big decisions. One word of warning. A sudden transition from the life of a busy business owner to a new ‘retirement’ life can be a challenge. It is worth doing some thinking. Here’s a few post-retirement suggestions to explore if you want to:

• Travel the world
• Get fit and healthy
• Set up a charitable foundation
• Start a new business
• Spend more time with family and friends

Regardless of what you plan to do, the advice from Coutts is:

• Use your expertise, focus on what you can do well;
• Keep networking, using old contacts and developing new ones;
• Plan and manage your time as carefully as your wealth;
• Prioritise, do things that you really want to do.

Structuring flexibility: how much is your business worth when you sell?

Often, when we think about exiting a company, we conjure the image of a spectacular business sale where a strategic buyer swoops in, pays an enormous price, and the business owner rides off into the sunset.

The reality is that there are several different ways to exit the day-to-day operations of your business, and the smartest founders align their exit type with their reason for leaving.

Have you considered the practical financial questions surrounding your exit? How much is your business worth to you? What’s your bottom line? How much of that money are you willing to receive over time or put at risk in return for a potentially bigger reward in the future?

I co-host the Value Builder peer board monthly here we work through the exercises and tools of The Value Builder System™ where we support businesses owners looking to maximise the value of their businesses for exit and sale.

The key to having a better exit is to remain flexible on how your deal to exit your business is structured.

If you’re open to helping the new owner capitalise on their investment in your business, you’ll have more potential acquirers, negotiating leverage and options for structuring a deal than if you insist on an all-cash offer with no involvement in your business after you exit

These are the most common exit types:

Personal detachment: Have you built a fulfilling life outside of your company?

Following on from the earlier point about planning what to do after you leave your company, you should consider how your future life is detached from the company. Simple things to consider are:

• How reliant are you on people from your work as personal friends and a social life?
• How much of your home expenses are tied into your company expenses?
• How strong are other emotional connections to the business, such as your status in your community or having your name in the business name?

This driver to a happy exit is very personal to each business owner but is worth considering.

Team involvement: have you considered how your employees will be treated when you exit your company?

The final driver for a happy exit is also potentially very emotional.

Have you considered how your employees will be treated when you exit your company? For every employee you tell about your plans to exit, the chances your exit will collapse grow exponentially. Customers may leave, suppliers may be spooked and employees may start looking for another job.

Despite the considerable risk of being transparent about your plans to exit, some owners feel the need to tell select employees before a deal is consummated. Is there anyone you want or need to involve in your decision to exit? There is no right or wrong answer to this question other than ignoring it and ending up later wishing you had thought the people side of things through beforehand.

Conclusion

When you started your business you were free. No boss to tell you what to do. You could run your business whatever way you wanted. A true ‘freedom fighter’. Yet very quickly that freedom reduced as you recruited people to work for you. You probably felt customers and suppliers were ‘owning’ parts of you. Banks and finance providers also wanted their cut of your business.

Yet you kept going, growing the business gradually, taking more money from it and hopefully winning back some of that freedom that you originally had and hoped to keep.

But we all must exit our business in some way. To be in the best position to have a happy exit, for you and the business, then you need to answer the two questions I raised at the start of this blog.

Answering these questions is not easy and will take time. Start earlier than you think and consult with trusted advisors. For practical advice, read my recent blog on selling your business for the best price.